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Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Danilo Masoni and Stefano
Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.
WHO WILL BE IN THE WHITE HOUSE AFTER NOVEMBER? (1330 GMT)
Who cares... is the short answer from financial markets. Analysing compounded returns across
various asset classes under the Barack Obama and the Donald Trump administrations, Louis-Vincent
Gave at Gavekal research found there was very little difference in market performance under both
U.S. Presidents.
Broadly, both equities and bonds thrived under both Obama and Trump, while the U.S. dollar
strengthened marginally under Obama and weakened under Trump.
Under Obama, the three best-performing sectors were consumer discretionary, technology and
health care. Under Trump, the three best-performing sectors have been technology, followed by
consumer discretionary and health care.
The two-worst performing sectors were financials followed by energy under both the Obama and
Trump administrations.
But Gavekal points out to a couple of important trends that have distinguinsed Trump's term
from his predecessor. The first is the weaker U.S. dollar story which will likely have an impact
on the returns for both U.S. Treasuries and the stock market.
The second is that while the drivers of the equity market bull run over the past decade have
been same structural forces, the gains have become narrower in recent months. That is a warning
sign.
(Saikat Chatterjee)
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BUT STAYING IN TIGHT RANGES (1319 GMT)
Even though one may be scared by today's sell-off that has put the STOXX 600 on
course for its worst month since the brutal March, if you look at trading ranges the story is
quite different: September remains a quiet month so far.
The gap between the highest and lowest point for September for the pan-European benchmark
currently stands at 4.8%, the narrowest since January when it stood at 2.9%, suggesting
investors remain fairly unperturbed by the fresh COVID-19 worries.
(Danilo Masoni)
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SO FAR, WORST MONTH SINCE MARCH! (1242 GMT)
September isn't over yet but so far, it's panning out as the worst month since the COVID-19
market crash in March for the STOXX 600.
We're currently sailing on a monthly loss of 2.1%, which would be the biggest retreat since
the 14.8% suffered six months ago.
Seems the narrative of a steady bounce back leading to plateau now seems in jeopardy.
The STOXX 600 is down 13.75% year-to-date and there's only two sectors in the black left:
tech up 5% and chemicals up 1.7%.
See below the monthly performance of the pan-European index:
(Julien Ponthus)
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EARNING UPGRADES: ONE SWALLOW DOESN'T MAKE A SUMMER (1214 GMT)
Earning revisions have returned into upgrade territory as of late after a disastrous Q2 but
it looks this promising trend, which is often behind price outperformance, won't last long.
Among the pessimists are JPMorgan strategists who expect the move to stall. Why?
* U.S. EPS revisions: "In order for EPS revisions not to falter, PMIs, oil, consumer
confidence and other need to rally hard from here, but this might not materialize".
* Europe EPS revisions: "One typically needed PMI readings of 54 and above for EPS revisions
to be sustainably positive in the region, but the Aug PMIs appear to have lost their momentum".
In the chart you can see how earnings revisions are already overshooting the uplift seen in
the Global composite PMI.
(Danilo Masoni)
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FLOODED WITH EQUITY (1013 GMT)
Capital raising plans by Rolls Royce today and by many others over the past week or
so, along with a number of IPOs, are here to underscore the pick-up in equity issuance that has
been going on since the trough in March.
Goldman Sachs calculates that the amount of issuance has increased, especially in the U.S.,
topping globally what we saw at this stage during the recovery after the Global Financial Crisis
more than a decade ago.
Now the key question is whether the market is deep enough to absorb the new issues without
harming performance and what lies ahead in terms of company's cash needs.
Analysts at the U.S. investment bank look upbeat.
"Provided we get a reasonable economic recovery next year, we would expect the equity
issuance needed to be well digested. Furthermore, 2021 should see an uplift in dividends and
buybacks too, balancing out some of the issuance," they say.
Back to the recent pick up in issuance, GS has spotted a couple of interesting themes:
* Sectors particularly hit by the coronacrisis need additional funds to sustain cash
shortages. It cites airlines like easyjet, TUI and IAG or shopping
centers such as Unibail-Rodamco.
* Companies might issue equities as part of a broader capital restructuring plan. It cites
Hammerson and Vonovia. Or companies with greater growth prospects that see
monetary support as an opportunity finance investments, such as Asos, Cellnex
and RWE.
(Danilo Masoni)
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WORST SESSION SINCE JUNE, TASTE OF THE SECOND WAVE? (0908 GMT)
"Second wave fears crash into markets", was the headline of AJ Bell's market comment this
morning and the broker is by no means the only one reporting angst about a new round of
lockdowns.
There's indeed quite an unpleasant sense of déjà-vu on the markets with indexes getting hit
in a way unseen since June and even since the March COVID-19 crash.
Travel and leisure shares are 5.5% down, which is the worst they've been hit since June 11
when they lost 5.8%.
So if losses accelerate a bit further among airlines and hotels stocks, we might very well
just get back to the scale of losses experienced during the March crisis.
It's the same pattern for banks, losing 4.5%, which is the worst performance since June 11
as well.
That's for the two laggards of the STOXX 600 but the pan-European index itself is
experiencing its worst fall since June 24.
So is it time to change one's mind as to where the economy and markets are going?
Mike Bell, strategist at JP Morgan AM, seems to think so.
"When the facts change, one should change one's mind. Now that infections are rising again
as we head into what could be a difficult autumn and winter, extending government support
measures for the economy makes perfect sense", he said this morning.
Anyhow, here's a look at how travel and leisure shares are close to losses similar to the
scale of the March crisis.
(Julien Ponthus)
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EUROPEAN SHARES FLIRT WITH ALL TIME LOWS (0809 GMT)
European banking shares have only very rarely traded this low. At 82 points, the STOXX 600
Banks index is only 4 points from the 78.9 record it hit on March 16 during the peak of the
COVID-19 market crash. The dirty money scandal unveiled by BuzzFeed and other media on Sunday is
sure having an impact.
As you can see below, the index is now only 4% above its lowest ever and down close to 50%
from its 2020 peak.
It's also past the 87 points lows hit during the financial crisis.
While the sector has recently been touted as a tempting value trade, it has shown yet again
is risky business to invest in.
Deemed as the value trap of last decade, banking stocks have had quite a spectacular ride
over the last 20 years. Here's how they've moved from the 2007 peak to 2020 record lows:
(Julien Ponthus)
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OPENING SNAPSHOT: BANKS, TRAVEL AND LEISURE SHARES FALL (0737 GMT)
As expected, the new money laundering scandal is hitting European banking shares hard with
the index losing 2.8%, back to May lows and down more than 40% year-to-date.
As you can see below, shares all across the continent are feeling the heat, it's not just
about the few names that have been mainly mentioned so far:
But another big move is also at play this morning. Travel and leisure shares are getting
hammered as Europe struggles to contain coronavirus infections and as speculation about new
lockdowns, particularly in the UK, does the rounds.
Here are the main movers in the sector and as you can see a lot of the losers are listed in
London where a statement on the COVID-19 situation is expected later this morning:
While travel and banks are definitely on the radar, losses are spread throughout sectors
with not a single industry in positive territory. It is very clearly a risk-off day with
utilities, healthcare and food scoring the best (so to speak) performance.
Overall the STOXX 600 is down 1.4%.
There's also quite a lot of price action for individual stocks, notably in Germany with
shares in United Internet down 23% after a guidance cut.
Another big loser is Rolls Royce which warned it needs to raise capital to beef up its
balance sheet.
Network International is also getting another beating today, down 17% after a tough few days
last week.
Many are still scratching their heads over the recent losses.
"The recent share price performance has left many investors wondering what they have
missed", Liberum analysts said in a note.
(Julien Ponthus)
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ON THE RADAR: BANKS, AGAIN... (0642 GMT)
Being the sector which has bore the brunt of the coronavirus crisis on the trading floors,
banks definitely don't need the attention of a new scandal, but there you go.
With BuzzFeed and other media reporting several global banks moved large sums of allegedly
illicit funds despite red flags about their origins, banking shares are set to open in negative
territory.
HSBC and Standard Chartered's shares in Hong Kong shares already fell on Monday and there's
possibly more losses to come during the European session.
On a more positive note, after a wave a domestic mergers, there's some speculation of
pan-European mergers brainstorming going on. On a more limited scale, Societe Generale is
gearing up to launch the sale of its asset management arm Lyxor.
Talking about deals, French telecoms group Iliad is launching a bid for Polish mobile phone
operator Play, valuing the company's total capital at 2.2 billion euros and corresponding to an
enterprise value of 3.5 billion euros.
There's already quite a bit of market price action in Germany in the sector with shares in
United Internet down 14.4% in early Frankfurt trade, while its subsidiary 1&1 Drillisch losing
18.3% after a guidance cut.
Shares of Britain's Rolls-Royce Holdings are also in the spotlight after the group said it
was looking to raise up to 2.5 billion pounds in an effort to strengthen its balance sheet.
Still in London, Royal Dutch Shell is looking to slash up to 40% off the cost of producing
oil and gas in a major drive to save cash so it can overhaul its business and focus more on
renewable energy and power markets, sources told Reuters.
More generally, the FTSE 100 and 250 will be under pressure as Boris Johnson ponders
additional COVID-19 restrictions with the trend of infections seemingly going in the wrong
direction.
On the bright side, there's quite a lot of chatter about more support for the UK economy.
Another morale booster for London is Streaming firm Wheaton Precious Metals announcing it is
planning a UK listing by year-end, potentially the largest metals and mining company to join the
London Stock Exchange since Glencore in 2011.
(Julien Ponthus)
*****
MORNING CALL: GLOOMY BUILD-UP (0532 GMT)
This week just doesn't look set for a happy beginning with quite a gloomy build-up so far.
European futures are down about 0.6% while the FTSE appears ready to make losses more in the
region of 0.9%. Wall Street futures are also down about 0.4% and the session in Asia is ending
on a negative note as MSCI's broadest index of Asia-Pacific shares outside Japan
retreats 0.4%.
Fears about the resurgence of the pandemic in Europe are expected to keep traders on their
toes.
As noted by Michael Hewson at CMC Markets, sentiment at the start of last week was boosted
by a wave of M&A wave but there's nothing expected of the sort this morning so far.
"As we look to a new week, with investors absorbing the recent statements from central
banks, and the prospect that further stimulus may not come immediately, concerns are rising that
the summer recovery is probably as good as it gets when it comes to the recent rebound in
economic activity", he writes.
"This reality combined with the growing realisation that a vaccine remains many months away,
despite President Trumps claims to the contrary, has made investors increasingly nervous, as we
head into an autumn that could see lockdowns reimposed", Hewson told his clients.
(Julien Ponthus)
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